The relation between the knowledge of reservation prices and the degree of success of bundling strategies

International Journal of Business Strategy, Jan, 2008 by Jose G. Aguilar-Barcelo, Marco A. Pinto-Ramos, Natanael Ramirez-Angulo

* % of advertising of bundles: relationship between the advertising devoted to bundles as a proportion of the total advertising within the establishment.

* Lerner index: the firm capacity to set the bundle price above its cost.

B. This paragraph show some expanded explanations of the criteria we have used in the categorization when necessary.

Market competition component. Comb neighborhood in order to locate close substitute products. According to the number of products found, the classification criterion has been defined as, Low: from 1 to 2; Medium: from 3 to 5; High: 6 or more.

Efficiency Component. For the case of scale economies: analysis of the relationship between the raw materials used (in a scale of 1 to 3 points). For the case of scope economies: analysis of the firm's tangible (technology, production processes, etc.) and intangible (brand name, image, etc.) assets linked to the production (in a scale of 1 to 3 points). According to the scores obtained, the classification criterion has been defined as, Low: from 1 to 2; Medium: from 3 to 4; High: from 5 to 6. It is worth noting that it is not possible to assert that the surveyed employee had considered the levels of scale and scope economies in the production, when answering about the profit margin of each bundle.

Correlation component. It is the answer to the question: Do you thing that the maximum that the majority of your consumers would be willing to pay for the products of this bundle is similar/different/very different? The question does not distinguish between dispersion of consumers' perception and indeed the correlation in their reservation prices.

% of the most expensive product. The variable does not take into account the number of single products included in the package, doing so would provide an aggregated value to the survey about the relationship between prices.

Lerner index. The cost used when calculating the Lerner index has been estimated through the answer to the question "What is the markup rate (MR) on this product?" where we have assumed that MR = (p - c)/c. It is reasonable to assume that the cost we estimated could be a variable cost of production and not a marginal cost (it is difficult to obtain reliable data about this variable). Therefore, consider this caveat in the Lerner index values. In the cases when the Lerner index has been used as part of a crosstab, the variable has been divided into categories by sectioning its range in three equal parts, where each of these parts does not necessarily contain the same number of observations. Nevertheless, the percentages of observations for each category in this and the rest of ordinal variables is always at least 10%.

AUTHOR PROFILES:

Jose G. Aguilar-Barcelo earned his Ph.D. in Economic Sciences from "Universidad Autonoma de Baja California" (UABC, Mexico) in 2006. He is member of the National System of Researchers (Mexico). Currently, he is titular professor of Game Theory at the Faculty of Economics and International Relations, UABC. His research interests include industrial organization, competition and regulation.